Commercial Mortgage REITs Take a Hit

Recent disclosures include one by RAIT Financial Trust, a commercially focused REIT, which calculated its exposure to American Home Mortgage Investment Corp., a troubled home-mortgage lender, at $95 million. That amount, if written off, is 7% of RAIT's book value per share, according to some analysts.

Analysts and investors say they fear there could be more of such revelations coming. UBS REIT analyst Omotayo Okusanya says most commercial-mortgage REITs suffer from poor disclosure and don't, for instance, break out their loans by industry or highlight their top 10 borrowers. "Unfortunately, you run into a situation where a certain amount of the business is a black box," he says.

The implosions are happening mainly among residential-mortgage companies such as American Home Mortgage Investment, which filed for bankruptcy protection last week. The situation has been stressful particularly for residential REITs that specialize in loan origination and rely on lines of credit to do so. With the number of bad loans rising, banks are requiring those residential-mortgage REITs to put up additional collateral and are cutting off much-needed lines of credit when they can't meet margin calls.